Buying Houses on Debt and Holding On... Household and Corporate Loans Reach Record High for July

Bank of Korea 'Financial Market Trends in July 2020'

[Image source=Yonhap News]

[Asia Economy Reporter Kim Eunbyeol] Despite the government's high-intensity regulations, housing prices continue to soar, and last month, bank household loans increased by the largest amount ever recorded for a July. Corporate loans, which seemed to have slowed down, also surged again.

According to the Bank of Korea's "Financial Market Trends in July 2020" released on the 12th, bank household loans increased by 7.6 trillion won in July, maintaining a similar growth trend following June's increase of 8.2 trillion won. Comparing only the increase amounts for July, this was the largest increase since the Bank of Korea began compiling preliminary data in 2004.

Among household loans, mortgage loans increased by 4 trillion won, and other loans (credit loans) rose by 3.7 trillion won. Although the increase in mortgage loans was smaller than the previous month, the increase in credit loans grew by an additional 600 billion won. The increase in credit loans was also the largest ever recorded for July. Yoon Okja, head of the Bank of Korea's Market General Team, analyzed, "It appears that the demand for credit loans has significantly increased as people seek funds for jeonse deposits."

Yoon explained, "In the case of mortgage loans, demand for funds related to housing jeonse and sales continues, but the scale of increase has shrunk due to a slowdown in group loans." According to the Bank of Korea, the increase in bank jeonse deposit loans rose from 2.5 trillion won in June to 2.7 trillion won in July, which was even larger than the increase in July last year (2.3 trillion won). Yoon said, "Although the Bank of Korea has not tracked jeonse deposit loans for a long time, this appears to be the largest increase for July in recent years."

However, the impact of the implementation of the three lease laws on jeonse deposit loans has not yet been significantly reflected. Since jeonse prices themselves have been strong continuously since the end of last year, this seems to have contributed to increasing the demand for jeonse funds.

Corporate loans, which had slowed at the end of June, surged again. According to the Bank of Korea, bank corporate loans increased by 8.4 trillion won in July, marking the largest increase ever recorded for a July since preliminary data compilation began in June 2009. In June, large corporations repaid loans to manage financial ratios but increased borrowing again in July. Bank loans to large corporations increased by 1.9 trillion won, turning positive, while loans to small and medium-sized enterprises rose by 6.4 trillion won, a larger increase compared to the previous month’s 4.9 trillion won.

Corporate bonds continued net issuance, but due to seasonal factors, the net issuance amount decreased to 1.5 trillion won in July from 4.4 trillion won in June. Stock issuance expanded from 1.5 trillion won to 2.1 trillion won due to rights offerings by some companies, including Korean Air.

Meanwhile, bank deposits decreased by 17.3 trillion won last month, turning negative. Demand deposits sharply declined as companies withdrew funds related to value-added tax payments, and time deposits continued to decrease due to falling deposit interest rates and withdrawals by local governments.